Could BitCoin ever be backed by Gold?

[ronaldmaustin]

Yes, you two have made my point that we are talking about money.  I was responding, tongue in cheek, the the guy who said bitcoins ARE the commodity to which bitcoins (the money) is linked.  Nonsense.  As you say, bitcoins are money.  Money is only as good as the promise backing the money.  If some guy in the Czech Republic promises me VPN or Web Hosting, and that's it, well, that's not much of a promise.  If the Pope promises me a bar of gold in writing for my bitcoins, they will have that value as long as the Pope can be trusted.  And, no you cannot trade shells on the internet.  If I did not see the great promise of bitcoins as money I would not even be here.  I like the concept and as more people accept bitcoins, the more people will use them.  But they could die if that does not happen.  If you back them with a commodity somehow (regarless of my lame example) people will buy and use them until the backing dies.

[grondilu]

In other words, sure, there is always some trust there that someone is going to deliver, the bank or entity holding the commodity is not going to get robbed or explode.  But pick the safest alternative reasonably possible and go with MAYBE getting your gold or coffee for your bitcoin in the worst case scenario, rather than getting nothing if 15 people stop accepting bitcoins.  As to the Hunter Brothers and silver, yes, I remember that.  But it is one hell of alot easier to buy up all of the bitcoins that all the gold or silver in the world.  Simply put, I think bitcoins would have wider acceptance if someone gave something for them that people want.  Right now, people are not quoting the price of bitcoins in terms of VPN service or Web Hosting (or the other 3 or four tangible things you can actually buy).  They quote the price in US Dollars.  Fine, great.  But the US is poised to kill that in a hot second just like e-gold if people start using bitcoins.  They won't like the anonymity and they will say bitcoins supports terrorism.  When the US does that, and MTGox says Bitcons are worth x days of VPN service, instead of 30 US cents, the bitcoin will be dead.  If it is backed by a promise of a credible entity for a tangible good that can be sold somewhere, the bitcoin will live on regardless of what the US does, unless the us can get to the holder of the goods in some way.

Your "credible entity" is nothing but a normal market agent.  There's no reason why one of them should decide of a correct price of gold in bitcoin.

I am currently selling physical gold for bitcoin.  Check out on the marketplace forum.  So I am your "credible" agent.  And yet, I have not decided any particular price :  I sell my gold in an auction process, with no starting price.

If you hesitate to buy a currency that is backed only by true market forces, just diversify and keep some gold.  As I do.

[ronaldmaustin]

I'm a buyer on the day the government says bitcoin supports terror for sure. That's going to be a huge pop.

Now that Wikileaks cannot accept payments via PayPal or Visa/Mastercard, Wikileaks could start accepting bitcoins tomorrow.  And that day the government says bitcoin supports terror would likely be tomorrow or the day after.  Then the US goverment would shut this site down and run the hosting out of the US.  Maybe Europe would join.  Your bitcoins would buy Web Hosting in Cuba, North Korea, and a few African nations.

[ronaldmaustin]

Your "credible entity" is nothing but a normal market agent.  There's no reason why one of them should decide of a correct price of gold in bitcoin.

I am currently selling physical gold for bitcoin.  Check out on the marketplace forum.  So I am your "credible" agent.  And yet, I have not decided any particular price :  I sell my gold in an auction process, with no starting price.

If you hesitate to buy a currency that is backed only by true market forces, just diversify and keep some gold.  As I do.

Actually, I may buy from you.  But what do you do with the bitcoins?  Do you trade them for dollars, services, or hold bitcoins?  Are you not concerned that the US will do to bitcoins what they did to e-gold if bitcoins becomes as successful as e-gold?  With e-gold, at least people have shares in the gold, even though they can no longer use e-gold as money.  If the US governement says you are currency trading (you are) and you need to "know your customer" and you are breaking the law, you will likely stop offering gold for bitcoins. This is the crux of my original question.  The likelyhood the US will do anything to shut down bitcoins is directly in proportion to its success.  You are a credible agent, I'm sure, but you will likely close up shop if you are in the US and faced with federal prison time.  A credible agent outside of the US, like a Swiss Bank, might not be coerced into rescinding on a promise to uphold the contract and provide a fixed amount of gold for one bitcoin (which is, incidentally, completely different that buying and selling gold with bitcoins.)

[grondilu]

Actually, I may buy from you.  But what do you do with the bitcoins?  Do you trade them for dollars, services, or hold bitcoins?  Are you not concerned that the US will do to bitcoins what they did to e-gold if bitcoins becomes as successful as e-gold?  With e-gold, at least people have shares in the gold, even though they can no longer use e-gold as money.  If the US governement says you are currency trading (you are) and you need to "know your customer" and you are breaking the law, you will likely stop offering gold for bitcoins. This is the crux of my original question.  The likelyhood the US will do anything to shut down bitcoins is directly in proportion to its success.  You are a credible agent, I'm sure, but you will likely close up shop if you are in the US and faced with federal prison time.  A credible agent outside of the US, like a Swiss Bank, might not be coerced into rescinding on a promise to uphold the contract and provide a fixed amount of gold for one bitcoin (which is, incidentally, completely different that buying and selling gold with bitcoins.)

It is not that different.  Think more.  It is really similar.

Anyway hopefully I won't be the only gold seller.   Being resilient to government coercion is not just a matter of geographic location, but also a matter of number of people.

The government is already in war against people selling drug.  I doubt it would start an other war against people selling gold.

[ronaldmaustin]

After having said all of that, you all probably think I am against bitcoins or have no faith.  On the contrary, I am leaving now to speed up the processor on my 5850 video card to make a few more coins over time.  I think the utility of bitcoins is the greatest thing to come along since sliced bread.  No argument there.  But when I tell people about it as a currency they almost laugh.  "You run your computer 24 hours a day and pay a larger electric bill for what??? What can you buy???  Oh, so kind of like Microsoft points then, huh?"  Then I tell them you can get cash and they ask where they can buy a fast video card and get started.  When you take cash out of the equation, no one needs what bitcoins can buy.  If, in addition to being money, a bitcoin was a certificate to be exchanged in a Swiss bank for 1 grain of gold, then the bitcoin would have true value in addition to it's unique value as a currency.  Later.  And thanks for the replies.

[ronaldmaustin]

Read this.  http://en.wikipedia.org/wiki/E-gold  The US Dollar does not like competition.

[caveden]

I was responding, tongue in cheek, the the guy who said bitcoins ARE the commodity to which bitcoins (the money) is linked.  Nonsense.

Why? Bitcoins are a commodity. A commodity doesn't need to be something physical... often stocks, debt bonds, fiat currencies and other financial assets are treated as commodities. The main requirement I see to treat something as a commodity is that different units of this something have the same value (like, different 1g bars of pure gold have the same value, as different 1 dollar bills). This way you can talk about a global price for the commodity itself, like the price of gold, the price of Google stocks etc...

Bitcoins are pretty much like gold. Not backed by anything, and yet quite good to be used as money/store of value due to their inherent properties.

Money is only as good as the promise backing the money.

No, that's not what makes good money. Again, gold is not backed by anything and it's quite a good thing to be used as money.

What makes something good money are attributes like:

• Limited supply
• Easy to transfer, stock and protect
• High divisibility
• Of course, it has to be a commodity as I defined above

[grondilu]

But when I tell people about it as a currency they almost laugh.  "You run your computer 24 hours a day and pay a larger electric bill for what??? What can you buy???  Oh, so kind of like Microsoft points then, huh?"

"First you're ridiculed, then you're ignored, then you're violently opposed, and then you win."

We're clearly in the first step.

[grondilu]

Money is only as good as the promise backing the money.

No, that's not what makes good money. Again, gold is not backed by anything and it's quite a good thing to be used as money.

What makes something good money are attributes like:

• Limited supply
• Easy to transfer, stock and protect
• High divisibility
• Of course, it has to be a commodity as I defined above

+1

[caveden]

When you take cash out of the equation, no one needs what bitcoins can buy.

There are some interesting things you can buy with bitcoins already, but yes, mostly you can't do much with them. But hey, come on, the whole project has barely two years! Most entrepreneurs here are geeks investing their own time, with no financial support from big investors. Give some time... new services are popping up... maybe someday something big will come out, and might push it over the mainstream.

About wikileaks, they are already aware about bitcoins, but they've (wisely) chosen not to use it because they know the project is yet too young for their needs.

I think what we need the most right now are more exchanges, in different currencies. That would make bitcoin a cheap way to transfer money overseas, what's already something big.

[nowhereman]

I think there is a problem with the standard meaning of the word 'backed'. The term originally meant that the value of a currency was pegged to the value of some amount of another commodity (usually gold or silver). This is seen when references toward the 'innate' problem of centralization is mentioned. Of course if this meaning of "backed" is used, then yes centralization would be necessary. However it seems that what is really the reason behind the idea of backing is this worry that the only commodity that bitcoin might be traded for is USD. However the fact that a currency can be traded for gold does not actually peg its value to gold. Likewise, if bitcoins could only be traded for USD, its value is not pegged to the USD (though it would probably be limited in value because of its lack of flexibility).

Bitcoins are a commodity; just like USD, gold, silver, oranges, etc... After all, a commodity is merely something that is used in trade or consumption. In particular, bitcoins are an intermediary commodity as their value lies in the ability of the bitcoins to be traded for things of useful value. Because of this fact, bitcoins value is best served not by artificially pegging its value to some other commodity, but by allowing it to be traded 'freely' in the most flexible manner possible. The more liquid bitcoins become, the more value they will hold. In this sense, bitcoins hold very little value (shown by the face that each bitcoin is worth only .3 USD). Until bitcoins become widely accepted as an internet currency, it will continue to hold value only in the same way an investment property hold value.

[ShadowOfHarbringer]

Gold will be backed by bitcoins someday.

Hahahahaha I'm really lovin' this forum

[ShadowOfHarbringer]

Bitcoins are a commodity; just like USD, gold, silver, oranges, etc... After all, a commodity is merely something that is used in trade or consumption. In particular, bitcoins are an intermediary commodity as their value lies in the ability of the bitcoins to be traded for things of useful value.

This is not entirely true. Bitcoins also have an inherent intelectual value, which is a solution to a complex mathematical problem.
Of course, that value is probably not very big, but still.

Also, bitcoins behave like gold when you want to obtain them. You need to mine them using energy & resources, and the more people is out there mining, the less probability exists you will be the lucky one. Exactly the same as gold: the less gold there is on earth, the more difficult mining becomes, as the "easiest" gold is always mined first and the more difficult one is mined later requiring more resources. Bitcoin is like scarce bullion in many ways...

[grondilu]

Also, bitcoins behave like gold when you want to obtain them. You need to mine them using energy & resources, and the more people is out there mining, the less probability exists you will be the lucky one. Exactly the same as gold: the less gold there is on earth, the more difficult mining becomes, as the "easiest" gold is always mined first and the more difficult one is mined later requiring more resources. Bitcoin is like scarce bullion in many ways...

It's not a matter of "mining difficulty", it's just a matter of statistics.

The more gold you extract from the ground, the less gold there is left there.  So the likelyhood of finding some gold decrease exponentially.  It's the same for any substance hidden in an other.

Put 100 black pieces of paper in a bag with a billion white ones.  Try extracting them one by one, and you'll see an exponential decrease of your production of blacks.

This exponential rule was one of the many things that I liked in the bitcoin protocol.  I'm thankful to Satoshi to have implemented it.  It's perfect to mimic a commodity extraction process.

[ShadowOfHarbringer]

Also, bitcoins behave like gold when you want to obtain them. You need to mine them using energy & resources, and the more people is out there mining, the less probability exists you will be the lucky one. Exactly the same as gold: the less gold there is on earth, the more difficult mining becomes, as the "easiest" gold is always mined first and the more difficult one is mined later requiring more resources. Bitcoin is like scarce bullion in many ways...

It's not a matter of "mining difficulty", it's just a matter of statistics.

The more gold you extract from the ground, the less gold there is left there.  So the likelyhood of finding some gold decrease exponentially.  It's the same for any substance hidden in an other.

Yes, this is also partially what i meant.
The less gold is in the ground, the more difficult it is to mine some gold out of it, as it requires more search, more work, more resources.

[FreeMoney]

Also, bitcoins behave like gold when you want to obtain them. You need to mine them using energy & resources, and the more people is out there mining, the less probability exists you will be the lucky one. Exactly the same as gold: the less gold there is on earth, the more difficult mining becomes, as the "easiest" gold is always mined first and the more difficult one is mined later requiring more resources. Bitcoin is like scarce bullion in many ways...

It's not a matter of "mining difficulty", it's just a matter of statistics.

The more gold you extract from the ground, the less gold there is left there.  So the likelyhood of finding some gold decrease exponentially.  It's the same for any substance hidden in an other.

Put 100 black pieces of paper in a bag with a billion white ones.  Try extracting them one by one, and you'll see an exponential decrease of your production of blacks.

This exponential rule was one of the many things that I liked in the bitcoin protocol.  I'm thankful to Satoshi to have implemented it.  It's perfect to mimic a commodity extraction process.

Seems geometric to me 

[Cambiro]

I don't see ways neither to bitcoin be backed by gold nor the contrary

[Steve]

There is no real reason for BitCoin to be backed by gold, or gold backed by BitCoin.  But, exchange between gold and BitCoin is important (and is a de-facto backing so long as there is a viable, liquid and relatively stable gold:BTC exchange market...which of course depends on people's willingness to hold gold and BTC).  Should it ever come to pass that the dollar (or other currencies) are banned from being exchanged for BitCoin, gold could be used as an intermediate step in the exchange of currency for BTC.  It is possible and legal to exchange gold and dollars anonymously in the US.  Establishing a network of people willing to exchange physical gold (and silver btw) for BTC is probably an important thing.

[LZ]

Total 21 million bitcoins amount is the value of Earth and Moon, including everything that is on them.

Gold will be backed by bitcoins someday.

Exactly! Let's think about a golden meteorite. What will happen?